Paris - G20 finance ministers will press Europe this week to
find an urgent solution to its debt crisis, with a row between Washington and
Beijing over the yuan threatening efforts to address broader global imbalances.
An economic slowdown and market slump has been met with
discord within the Group of 20 rich and developing economies that make up 85%
of global output, a stark contrast to 2009 when the group launched a
coordinated stimulus to pull the world economy back from the brink.
From Brasilia to Tokyo, impatience has grown at Europe's
failure to turn the page on a debt drama that has roiled markets and threatens
to shatter confidence in a fragile world recovery.
Disagreement within the eurozone over how to recapitalise
banks and stabilise Greece make any breakthrough unlikely at the two-day G20
ministerial meeting starting in Paris on Friday, with policymakers targeting an
EU summit on October 23 as the key forum.
Anger has resurfaced in Washington over the level of the
yuan, prompting warnings from Beijing that a bill approved by the US Senate on
Tuesday to press China to lift its value could prompt a trade war and derail
efforts to promote global growth.
Washington has also urged countries in sufficiently robust
shape, such as Germany, to soft-pedal on austerity measures or even inject
fresh stimulus.
Berlin has not proved to be receptive and a defeat for
President Barack Obama's $447bn jobs stimulus bill in the senate on Tuesday
leaves the United States in a weaker position to prod others.
The G20 finance ministers are expected to make progress in
some areas, including support for an increase in the IMF's firepower to cope
with the growing threat of crises in large, developed economies.
It should also give the green light to regulators for new
rules on banks deemed "too big to fail", including capital
surcharges, due to be officially approved by G20 leaders at a summit in Cannes
on November 3-4 that wraps up France's presidency.
"I'm not expecting any big announcements this week.
Ministers are not going to pre-empt their leaders," said one G20 delegate.
"The final communiqué will affirm that the Cannes summit will announce
short- and medium-term steps to stabilise the global economy."
French President Nicolas Sarkozy and German Chancellor
Angela Merkel have pledged to find a permanent solution before the Cannes
summit to get the eurozone debt crisis under control, but a decision to delay
an EU leaders summit to approve a deal by a week suggests a consensus remains
elusive.
While Germany is leaning towards a second round of losses for Greek bondholders, Paris is reticent.
Doubts remain on how to leverage the €440bn European
Financial Stability Facility (EFSF) rescue fund, something Washington has
pushed for, and the role it should play in providing perhaps €100bn in fresh
capital for the region's banks.
Complicating matters, Slovakia's parliament on Tuesday rejected a prior eurozone plan to ramp up the EFSF's firepower.
"It's really early days. They can't be precise at the G20 level until the Europeans have decided," said Gilles Moec, senior European economist at Deutsche Bank. "The November G20 summit is a realistic target to have a framework. Of course, the implementation will take much longer."
Brazilian Finance Minister Guido Mantega said on Monday he
expected G20 nations to discuss extending further support to the IMF to help
manage the European debt crisis.
"A deal on expanding the resources is something which
could be deliverable by Cannes," said the G20 source. "The French
support this."
Derailed
The deepening of the eurozone crisis has derailed Sarkozy's
stated aim of using France's year-long presidency to launch a fundamental
rethink of the global financial system and its reliance on the dollar. After
November's summit, France passes the G20 baton to Mexico, which has elections
next year.
In Paris, ministers will discuss the measures needed to
tackle economic imbalances blamed for helping to trigger the 2007-09 financial
crisis - such as the persistent US trade gap and the correspondingly large
surplus in China.
A G20 meeting in April placed seven large economies under
review: the debt-burdened United States, export-rich China, France, Britain,
Germany, Japan and India. Officials have said privately the aim was to get
Beijing to discuss the yuan, and China's cooperation is essential to the
success of the process.
China, which has let the yuan revalue 30% against the dollar
since 2005 and says it is committed to gradual reform, called on Obama to veto
the senate bill which would allow Washington to slap tariffs on imports from
nations found to be undervaluing their currencies.
"There'll be strong pressure on China to agree to
revalue the yuan but it's uncertain how this will play out in terms of the
communiqué. China can argue now is not the time to do it and that European-US
fiscal problems are more important," said another G20 official.
France has dangled the prospect of China's yuan entering the basket of currencies making up the International Monetary Fund's special drawing right in a bid to divert the debate away from its value and onto the criteria of free "usability" required for this.
A French official said an agreement on the necessary steps
was expected by November's summit, but China was dragging its heels on
specifying a timetable.
A drive for a G20 "code of conduct" on short-term
measures allowing members to impose curbs on capital flows also appeared to be
losing momentum in the face of emerging economies' resistance, another official
said.
"This G20 meeting will be quite interesting in the
sense that reaching an agreement won't be easy in many areas," said one
G20 official.
With governments at odds, there is some evidence of central
banks trying to fill the void. The Bank of England authorised a new round of
quantitative easing last week and in the emerging world, Brazil and Indonesia
have cut interest rates.
Ministers may discuss a replacement for future European
Central Banl president Mario Draghi at the head of the Financial Stability
Board global banking watchdog, but a decision will not be taken until Cannes
when Draghi will also make recommendations on reinforcing the institution,
which has just 20 staff.